Proposal to add AAVE as collateral only

Dear All,
This is a call to action for the Aave community to signal the intention to add/or not AAVE as collateral only on the AAVE platform.
Here are the pros and cons of this addition that I have identified so far.
Cons:

  • At the moment AAVE has almost no liquidity. However this is about to change very quickly as Binance has scheduled the internal migration on October 12th and many other exchanges will follow suit in the next two weeks.

Pros:

  • The migration of the existing LEND collateral straight into AAVE. At the moment there is a significant amount of LEND just waiting for the transition as a collateral in AAVE. There is no point for the owners of that lend to convert to AAVE as they cannot deposit it back. They can stake it sure, but not everyone may want to stake AAVE, many may want to use it as collateral instead for other purposes.
    Since the biggest problem is liquidity and pricing feeds it makes sense to wait until AAVE reaches a minimum threshold of daily volume of 20 mln USD/day. Once the threshold is reached, the AIP may be put up for a vote.
    Nevertheless, we should at least signal the intent as a community so as to not waste time unnecessarily and assure other usage options for AAVE as its liquidity grows.
14 Likes

I agree, and would like to see this come to fruition. The conversion will stagger without the ability to swap LEND being used as collateral, for AAVE (to be used as collateral). How about an autonomous swap of aLEND to aAAVE and to be used as collateral - added to the asset list as well.

2 Likes

and… this is probably the most important change needed asap to allow the full-effect of the ecosystem, without disruption to depositors, LEND-ers who have loan positions in LEND. Otherwise, value stabilization is at risk and unnecessary fees and moving around of currencies just to do this conversion ‘as is’

BUMP.

2 Likes

I’m in full support of having AAVE as collateral.

I think in the short term, there is some liquidity shortage which may cause issues for an acceptable risk assessment - but if that’s the case it wont be long until that’s no longer an issue.

As the liquidity grows by the day it’d be great to see some more thoughts on this so that we have the ground covered for when there’s enough liquidity.

edit: adding on to this, it did occur to me the current use case of LEND as collateral, which is just that, only collateral. Users don’t earn interest on the LEND deposited currently, but what if they did earn interest on AAVE? Would this be competing with the safety module for AAVE deposits?

3 Likes

Yes! That’s a no brainer for me!

Edit: once AAVE is accepted as collateral, it would be awesome to be able to migrate aLEND to aAAVE in one go!

4 Likes

This is exactly what popped into my mind. AAVE is first and foremost a governance token and the protocol’s in-built insurance system. Inherently, AAVE as collateral is AAVE out of the safety module.

Depending on our long-term compensation model for staked AAVE, market forces would ideally push the yield on stkAAVE to be higher than aAAVE, to compensate the higher risk.

With that said, as slashing gets enabled, one of Aave’s main value propositions will be the in-built safety module. If we enable borrowing of AAVE, we’re taking value out of that proposition.

Definitely an interesting conversation to have. I wouldn’t be against allowing its use purely as collateral at all though!

3 Likes

I don’t think you take value away from staking, as some will find other ways to use Aave and some don’t want to be forced in locking up their assets for a period of time. Other DeFi coins (yfi etc) do exactly this, and leave it up to choice of what the individual is willing to risk and utilize freely. To take away the ability in current collateral loan positions would be going backwards, imo. Having a choice to use the value of the token elsewhere, whether in The AAVE platform or other platforms is a necessity

2 Likes

Yes I think the market forces might push more towards rewarding StkAAVE more compared to aAAVE, really depends on the market of course and the governance to decide upon incentives in the future. Besides being as a collateral since due to the migration and positions open as borrowings, a script might be needed to be developed to migrate aLEND to aAAVE without affecting borrow positions.

3 Likes

I would argue, collateral usage, to borrow against and leverage a loan position is an advantage in that the value of doing so isn’t based on staking. If some type of interest is earned, that is a bonus, but not necessarily needed…

If someone wants to stake, and risk, and earn- that is up to the user. If someone wants to take a loan against the collateral value, that is a totally different aspect - again, non-competing.

Thoughts on:::::::::
To address the “competing” concern, Is there a probability to stake and use the staked AAVE as collateral ? Simultaneous Of staked AAVE = deposited AAVE and a flip switch button to “use as collateral” —- maybe with a lower collateral percentage ?

I am all for the collateral usage and script to help this along. I have noticed LEND deposited has gone from over $400M to around $60M, since the migration began.

2 Likes

Just chiming in to see if there is active support for this.
AAVE right now is less useful than LEND is for me as I would prefer to have collateral (with AAVE price exposure), so I won’t migrate until either I have to or I can use AAVE as collateral as well.

I’m surprised AAVE would not offer this from the get-go seeing as how it makes it difficult to migrate when you are using LEND as collateral on their platform as intended.

Any updates on this, will it be used as collateral or just staking and if so, when?

3 Likes

I’m with you and also surprised. Also surprised after overwhelming sentiment votes and obvious need to do this that there has been ZERO movement or communication on the process in getting this in to the next AIP … and again, when? How long does it take? Communication of the process would be appreciated …

3 Likes

Hey guys, I would love to migrate my LEND into AAVE but I can’t for now because I use my LEND tokens as collateral. If AAVE would be enabled as collateral I could do the switch. Is there a deadline for the token migration? I dont want to lose my LEND because of this.

Im sure im not the only person with this situation right now

4 Likes

There’s a 10% premium for LEND over AAVE right now for one reason only, LEND can be used as collateral and AAVE cannot.

Hurry up guys, the migration won’t be done otherwise.

4 Likes

Agreed. Many will not migrate because they have open loans and need to use their lend tokens as collateral for said loans.

2 Likes

I’m also in the position of using LEND as collateral. Any update on this?

2 Likes

What is the latest on this?

@gyoung

AAVE collateral